Chapter 15

Example of Financial Services

Cars, home appliances, vacations, and college

Explain how the U.S. dollar has those six characteristics.

1. Acceptability: Having money being accepted at the time of a purchase. 2. Divisibility: Pennies, Nickels, Dimes, Quarters. Breaking down the dollar into smaller sections. 3. Portability: Money being easily carried about, where as rocks would not be so easy to carry around and transport from one place from another. 4. Stability: Money must be stable and maintain its declared face value. So a $10 bill should be able to buy the same thing from one day to the next. 5. Durability: Money must be durable. The crisp new dollar bill will go about 20 months before begin replaced. 6. Difficulty to Counterfeit: Money must be difficult to counterfeit.

Why do finance companies charge higher interest rates than commercial banks?

While Credit Unions were originally created to provide depositors with a short-term source of funds for low interest, Now that they offer a wide range of financial services the larger the credit union and the larger the financial services offerings the higher interest rates will be.

What are some of the advantages of electronic funds transfer systems?

1. Electronic Fund Transfer: Any movement of funds by means of an electronic terminal, telephone, computer, or magnetic tape. 2. Automated Teller Machines: The most familiar form of electronic banking, which dispenses cash from accepts deposits, and allows balance inquiries and cash transfers from one account to another. 3. Automated Clearinghouses: A system that permits payments such as deposits or withdrawals to be made to and from a bank account by magnetic computer tape. 4. Online Banking: The customer is able to log into their account on a computer, phone or whatever device and transfer money from one account to another. Along with deposit a check if necessary, all from the comfort of their home, work, car, or out on the go.

Discuss the four economic goals the Federal Reserve must try to achieve with its monetary policy.

1. Open Market Operations: Decisions to buy or sell U.S. Treasury bills (short term debt issued by the U.S. government) and other investments in the open market. 2. Reserve Requirement: The percentage of deposits that banking institutions must hold in reserve. 3. Discount Rate: The rate of interest the Fed charges to loan money to any banking institution to meet reserve requirements. 4. Credit Controls: The authority to establish and enforce credit rules for financial institutions and some private investors.

Credit Union

A financial institution owned and controlled by its depositors, who usually have a common employer, profession, trade group, or religion.

Why do credit unions charge lower rates than commercial banks?

A savings account at a credit union is commonly referred to as a Share account, while a checking account is termed a share draft account. Because the credit union is tied to a common organization, the members (depositors) are allowed to vote for directors and share in the credit unions profit in the form of higher interest rates for account and / or lower loan rates.

What are the six characteristics of money?

Acceptability: Divisibility: Portability: Stability: Durability: Difficulty to Counterfeit

Explain how the Federal Reserve uses open market operations to expand and contract the money supply.

When the Fed buys securities it writes a check on its own account to the seller of the investment. When the seller of the investment deposits the check, the Fed transfers the balance from the Federal Reserve account into the seller's account, increase in the supply of money in the economy and hopefully fueling economic growth. The exact opposite happens when the Fed sells investment meaning, the buyer write the check to the Federal Reserve, and when the funds are transferred out of the purchases account the amount of money in circulation Falls showing economic growth to certain level.

What are the basic differences between commercial banks and savings and loans?

Commercial Banks: The largest and oldest of all financial institutions, relying mainly on checking and savings accounts as sources of funds for loans to businesses for individuals. Savings and Loan Associations (S&Ls): Financial institutions that primarily offer savings account and make long-term loans for residential mortgages; also called "thrifts"

What is the difference between a credit card and a debit card?

Credit Card: Means of access to pre approved lines of credit granted by a bank or finance company. Debit Card: A card that looks like a credit card but works like a check. Using it results in a direct, immediate, electronic payment from the cardholder's checking account to a merchant or third party.

Why are credit cards considerably more popular with U.S. consumers?

Credit Cards are more popular because they are a substitution for cash, and they are also much more convenient. Most stores accept credit cards so it is a quick was to get through your transaction.